Banking in India: fixed deposit options

Are you a person who is averse to taking risks when it comes to making investments? Afraid to risk your money on stocks and too busy to track a mutual fund portfolio? Have some spare cash and want to keep it liquid but wouldn’t mind some interest on it?

If you answered ‘yes’ to any of the questions above then Fixed Deposits (FDs) are an option you could consider. As an NRI / PIO, you can opt for fixed deposit schemes in almost all private and nationalized banks in India.

RBI Directives

The Reserve Bank of India has prescribed time limits for which FDs / term deposits can be made.

• Foreign Currency (Non-Resident) Account (Banks) Scheme (FCNR (B) Account) – 12 months to 60 months.
  
  
• Non-Resident (External) Rupee Account Scheme (NRE Account) and Non-Resident Ordinary Rupee Account Scheme (NRO Account) – Duration is at the sole discretion of the bank offering the deposit scheme.

Banks generally do not pay any interest if these fixed deposit accounts are closed before the 12-month period.

Types of FDs

The minimum amount you would require to open a fixed deposit account is USD 600. You can choose from two types of FD accounts:

• SPECIAL TERM DEPOSITS: The earned interest is added to the principal and compounded quarterly. This amount is accrued and repaid along with the principal amount on maturity of the deposit.
  
  
• ORDINARY TERM DEPOSITS: The earned interest is credited to the investor’s account, held with the bank or in a bank account of his choice, once a quarter. In specific cases, interest may be credited on a monthly basis. However, this is at the sole discretion of the bank in which the deposit is made.

The interest rate on these fixed deposits is very high and is compounded on a quarterly basis. Also, the earned interest amount is exempt from income tax.

It is possible for you to get loans against fixed deposits as well. However, these loans are provided subject to restrictions on the use of the deposited funds. The interest rate applicable to loans against FDs ranges between 7% and 10.5%.

Special FDs

If you hold a Non Resident (Special) Rupee (NRSR) account, you can make an FD for any period ranging from 15 days to 10 years. However, the interest rates applicable to the deposits will be the same as those offered to resident investors. Further, the principal amount and the interest earned on the deposit will be non-repatriable and the interest earned will be subject to tax deducted at source by the banks.